Author(s): Fabio Panetta
Date published: May 2021
SUERF Policy Brief, No 95
by Fabio Panetta1
Member of the Executive Board
European Central Bank
Download: SUERF Policy Brief, No 95 (0.45 MB)
A digital euro can only be successful if it meets the needs and expectations of European citizens2. The outcome of the European Central Bank’s public consultation on a digital euro, published on the ECB website3, will therefore provide valuable input for the Eurosystem’s decision – this summer – on whether we should start a digital euro project. The consultation will also inform future work on the design of a digital euro, if a project is launched.
For the participants in the public consultation, the most important features of a digital euro are privacy, security and broad usability.
We received more than 8,000 replies, an all-time record for ECB public consultations. The overwhelming majority of the responses came from citizens, while 460 were from businesses and professionals in the payments sector.
The consultation was open to everyone, and participants contributed on their own initiative. This means that the sample of respondents is not statistically representative of the European population. Nonetheless, the breadth and depth of the responses offer valuable insights.
Privacy was considered to be the most important feature of a digital euro in about 43% of replies.4 Nevertheless, respondents recognise the need for the digital euro to have features that prevent illicit activities like money laundering or terrorist financing. Other important characteristics include the possibility of using the digital euro for secure payments (ranked first by 18% of the respondents), throughout the entire euro area (emphasised by 11% of the respondents), without additional costs and offline (underlined by 9% and 8% of the respondents respectively).
Citizens and professionals agree that a digital euro should be integrated into existing payment infrastructures. The vast majority of respondents believe that banks, payment institutions and other intermediaries have an important role to play in providing services related to a digital euro.5 They suggest, for example, that a digital euro should be integrated with mobile and online payments and banking services. They expect the additional services that would build on the basic payment functionalities of a digital euro to trigger innovation and efficiency.
A sizeable share of participants also highlight that the digital euro should make cross-border payments faster and less costly.6
And more than half of respondents are willing to test, adopt or contribute to the design of a digital euro in order to make it an effective means of payment.
Privacy emerges as the most important feature of a digital euro. Protecting users’ personal data and ensuring a high level of confidentiality will therefore be a priority in our work7, so that the digital euro can help maintain trust in payments in the digital age.
At the ECB we started to explore privacy in digital payments early in our work on a central bank digital currency, and we will continue to do so through further analyses. The results of our technical experimentations are available on our website.8 A digital euro would in fact increase privacy in digital payments. As a public and independent institution, the ECB has no interest in monetising or even collecting users’ payment data. A digital euro would therefore allow people to make payments without sharing their data with third parties, other than what is required by regulation. This differs from private payments, where services are generally offered in exchange for personal data that are then used for commercial purposes.
Privacy is an important prerogative because it influences people’s personal lives and fundamental rights. It must nonetheless be carefully assessed against other important considerations in the general interest.
Digital euro payments could guarantee different degrees of privacy9, involving different trade-offs with other policy and regulatory objectives such as the need to combat illicit activities. Such trade-offs also characterise traditional means of payment, which provide various degrees of privacy, ranging from anonymity for cash payments10 to full disclosure for digital transactions that require documentary verification and monitoring of operations.
In theory, digital euro payments could be anonymous if users’ identities were not verified when they access digital euro services. But this anonymity would provide fertile ground for unlawful activities and could prevent compliance with regulations on anti-money laundering and combating the financing of terrorism.
Anonymity would also prevent limits being imposed on the use of digital euro when necessary – for example to safeguard financial stability and banking intermediation by preventing excessive capital flows or excessive use of the digital euro as a form of investment.
Even if users have to identify themselves when they first access digital euro services, different degrees of privacy can still be maintained for their payments. Certain transactions could be conducted without the payment details being shared with third parties. For example, if low-value offline payments were offered, they could be settled between the payer and payee without any data being shared with intermediaries.11
For electronic and large-value transactions, details should be available to intermediaries. But privacy-enhancing techniques could still ensure a high level of privacy. For example, the identity of users could be kept separate from payment data, allowing only financial intelligence units to obtain this information and identify the payer and payee when suspicious activity is detected.
Our preliminary experimentation on a digital euro is showing promising results on how technology can be used to protect user privacy without relaxing standards against illicit activities.12
But there could also be cases where transparency of payments would be in the interest of consumers. For example, it may be necessary to verify a payment after it has been conducted to prove that the transaction took place or if a refund is required.
In any event, cash would remain available alongside a digital euro. Consumers would be able to continue to make anonymous payments with banknotes, if they wish to do so.
We will take all these factors into consideration as we continue our work and seek the views of stakeholders to find the right balance. This includes maintaining a close dialogue on the implications of potentially issuing a digital euro and the framework that would be needed to do so with the legislators and institutions that set the rules on privacy and data protection.
The security and usability of the digital euro are also particularly important for prospective users.
Electronic payments are becoming increasingly popular, so a digital euro would ensure that sovereign money – a public good that central banks have been offering to citizens for centuries – remains available in the digital era. People could have full confidence in both the digital euro and cash, since they are both backed by a credible central bank. This is a unique feature that no private payment scheme can provide.
A digital euro would not mean the end of cash. It would complement cash, not replace it. In doing so, a digital euro would contribute to a more diverse payments landscape, giving people greater choice in how they pay. This is also why the digital euro cannot and will not be a tool used to impose negative remuneration on money. If digital euro holdings were to be remunerated, the remuneration of individuals’ holdings for basic retail use would not go below zero. And effective choices on the design of a digital euro would eliminate risks to financial stability and banking intermediation.
A digital euro would encourage further innovation and digitalisation in retail payments. Supervised intermediaries such as banks and payment institutions could build on the digital euro to offer additional services to end users. Respondents to our consultation expect the digital euro to foster the provision of services that add value, like those covered by the revised Payment Services Directive13 and those that could offer the possibility of linking a payment to an external condition.14
We are currently focusing on domestic needs in the euro area. But a digital euro could also help to address inefficiencies in cross-currency and cross-border payments.15 We are working with other major central banks to reap the potential benefits of digital currencies at the global level. We want to gain a better understanding of the implications of different types of central bank digital currencies, while controlling the possible risks to both domestic and foreign economies.
The record level of participation in our public consultation and the willingness of citizens and professionals to support a digital euro are encouraging. Their responses show the high expectations that prospective users have for a digital euro and provide valuable input for our work.
We are treating this matter with priority and will move as rapidly as possible. But we also need to take the time to do it right.
In the coming months, the ECB’s Governing Council will decide whether to start a formal investigation phase on a digital euro.
In such a phase, we would carefully analyse possible design options and user requirements as well as the conditions under which financial intermediaries could provide front-end services built on a digital euro. We expect this analysis to take around two years.
At the end of the investigation, the Governing Council would take a decision on the design and on whether to move to the implementation of user requirements. This phase, which would take several years, would see the development of integrated services, testing and possible live experimentation of a digital euro.
Only at the end of this process would the Governing Council be able to decide whether or not to launch a digital euro. We will do our best to ensure that a digital euro meets the needs and expectations of Europeans. But it can only be a common European enterprise. The alignment of European authorities and institutions, mindful of their respective mandates and independence, will be key if a digital euro is to be accepted.
About the author
Fabio Panetta has been a member of the Executive Board of the European Central Bank since 1 January 2020. He is responsible for International and European Relations, Market Infrastructure and Payments and Banknotes. Prior to joining the ECB, Mr Panetta was Senior Deputy Governor of the Banca d’Italia and President of the Italian Insurance Supervisory Authority (Ivass). He served as a Member of the Board of Directors and as a Member of the Committee on the Global Financial System of the Bank for International Settlements. From 2014 to 2019 he was a Member of the Supervisory Board of the Single Supervisory Mechanism at the European Central Bank. Mr Panetta graduated with honours in Economics from LUISS University (Rome). He holds a M.Sc. in Economics from the London School of Economics and a PhD in Economics and Finance from the London Business School. He has authored books and papers published in international journals such as the American Economic Review, the Journal of Finance, the Journal of Money, Credit and Banking, the European Economic Review, the Journal of Banking and Finance.
SUERF Policy Briefs (SPBs) serve to promote SUERF Members’ economic views and research findings as well as economic policy-oriented analyses. They address topical issues and propose solutions to current economic and financial challenges. SPBs serve to increase the international visibility of SUERF Members’ analyses and research. The views expressed are those of the author(s) and not necessarily those of the institution(s) the author(s).
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